The finance and technology industries are both big industries in today’s markets, so is it any wonder that they’ve been joining forces as of late? The financial technology or ‘FinTech’ industry is an emerging market within finance that has the potential to disrupt financial institutions as we know them. For those looking to invest in such a start-up industry, it can seem like a risk that may not be worth taking. However, with the strength of technology in our society, is there really anything to worry about? Here, we’re looking deeper into financial technology, and everything you need to know before investing in FinTech.
What Is Financial Technology?
While FinTech might seem fairly simple to define, it’s an industry that has proven to be difficult to pinpoint. Nevertheless, financial technology has been affecting our lives and how we bank, do business and invest for years – so why has it become such a point of conversation now? FinTech, as of late, has been a label applied to start-up companies who specialise in technology and are developing products or services for the financial services industry. This often manifests technology relating to mobile payments, money transfers, fundraising, loans, asset management and more, on both a business and consumer level. With the FinTech industry growing every day, traditional banks and financial institutions are looking to jump on the proverbial band wagon.
Who Do I Need To Watch In FinTech?
As mentioned previously, start-ups are the leaders in financial technology, but that doesn’t mean that traditional finance companies are not active or important either. Start-up companies tend to be found in hubs such as San Francisco, New York, London, Singapore, Berlin and Tel Aviv to name a few, and will often offer targeted solutions as opposed to a bit of everything. Ripple, an emerging payments network, and Lenddo, an alternative credit scoring service, are just two of the thousands of FinTech companies currently in the midst of either starting up, or making their mark on the world.
Traditional banks, however, are becoming increasingly interested in FinTech too, and some are already integrating these emerging technologies into their everyday activity. Citigroup, in particular, has one of the largest FinTech ‘portfolios’ of all banks across the world, with 13 start-ups backed between 2011-2015 alone.
What Regulation Is There?
Regulation surrounding these new, emerging technologies is one that has been widely debated since it first came to fruition. FinTech start-ups don’t often do business in the same way as traditional institutions, and so the debate on how to apply existing financial conduct regulation to these companies has been a hot topic. All in all, the outcome appears to be that regulators and policy-makers alike are realising that they may need to reconsider their existing frameworks completely to cater for these new FinTech disruptors. When it comes to investing in FinTech, this fluctuation in regulation could have an effect, but whether it will be a positive or negative one has yet to be seen.
What Areas Are Attracting The Most Investment?
With FinTech growing so rapidly, keeping up with the areas it is both creating, and inhabiting can be a difficult process for those looking for an area to invest in. However, there are a few stand-out markets that FinTech seems to congregate towards, and they are as follows:
- Artificial Intelligence – With the likes of Amazon Alexa and Google Voice becoming widely available on the consumer markets, more eyes are being turned towards the possibilities behind artificial intelligence. Machine learning, big data applications and many more can be improved by artificial intelligence, and FinTech start-ups are certainly aware.
- Cyber Security – Technology is a heavy topic not only in finance, but in every industry, and our online security is important to us not only as consumers, but in business transactions too. Attacks on banks have sent FinTech start-ups to create improved security options, so this could be the market to invest in this year.
- The Blockchain – Blockchain has proven to be quite the disruptor in not only the finance industry, but the technology industry too, so why wouldn’t FinTech react accordingly? However, while the past couple of years have involved a lot of boasting about Blockchain use, sceptics, and the fluctuation of the likes of Bitcoin and it’s alters is making this more volatile than ever.
- InsurTech – The insurance industry has arguably been slower than most when it comes to technology, but FinTech is certainly taking care of that. This could be the market to watch in the coming years!
What Can I Expect In The Future Of Fintech?
FinTech, in the past, has been seen as a threat to traditional financial institutions, but in the past year or so, this has turned around completely. In fact, banks are starting to open their arms to FinTech, and rightly so. The improvements that new technologies can bring to banking can create efficiency in business trades, asset management and so much more, while consumers will have easier and far more secure access to their banking and finances.
The future of FinTech is one that is hard to predict. While it’s still going strong, and could continue to do so for the foreseeable future, fluctuations and new technologies in other industries could have effects that are truly impossible to predict. While the industry is still new, the risks around investing are certainly ones to pay attention to. However, with the right risk analysis and data collection, investing in this exciting new market certainly isn’t an opportunity to pass up.